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Will The US Default On Its Obligations On Oct 17th?

Posted 6 months ago.

3 Comments

  • Dale - 6 months ago

    Too much has been said, and in this game of Chicken, the younger and more seasoned Republicans are at odds. When one is making one's bones so to speak, compromise is a dirty word.

  • Tom Kazazes - 6 months ago

    Fred - I hope all is well. Interesting question but I think there needs to be some discussion of "default" in this context. For example, clealry the US not paying interest or principal on maturing US Treasury issues is the most technical definition of default for the bond market? If there is no deal, we will reach the debt ceiling which is the maxiumum amount of debt the Treasury is authorized by Congress to issue. Without an increase in the debt ceiling, the Treasury is precluded from increasing the total amount of outstanding US Treasury issued on a net basis. That is, they will be limited to only issuing new debt equal to the amount of debt that is maturing at the same time for no net gain. And this is where it gets "interesting" because when we issue new US Treasuries, we are issuing debt whose proceeds will go to several needs:1) to pay for stuff that tax revenue is insufficient to pay for (i.e. deficit spending) 2) to refinance the principal amount of US Treasury debt maturing for which we do not have the cash to pay off in full and retire3) to finance the interest that was accrued on that retiring debt and is now added to our total debt4) to pay all the interest payments on all the other outstanding US Treasury debt that is out there. So the inability of the Treasury to issue debt to cover items 2-4 above could trigger a technical default on the oustanding debt. But is the tricky part, is the definition of default as we all use it solely in the context of US Treasury debt? That is, if the US government could reduce #1 above, its non-debt related expenditures and continue to issue debt under the present ceiling, is that a "default" if the government does not make payments that it would make if the ceiling were not hit?For example, if a deal is not reached and there is no continuing resolution, will it be a "default" should the US government have to furlough government employees? If the US government has to issue IOUs in stead of cash to state governments for federal funds related to projects, Medicare/Medicaid, unemployment benefits, etc., is that a "default"? Interesting matter of semantics, no?

  • Tracey Jackson - 6 months ago

    They will pull it out of the hat somehow. It will just leave someone else without a hat and the whole thing will come back down the line yet again.

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